Kevin Drum made an important point the other day about a great change hitting our world and illustrated it with the graphic to the right. He writes:
After all, with only a couple of exceptions, even the most pessimistic peak oil folks don't think world oil production is going to peak for several more years, which means there's not much reason for short term price spikes. So what's the explanation?
It's possible that it's due to nothing more than normal short term market fluctuations. However, the chart on the right suggests the answer is more fundamental: demand is now exceeding supply.
And that would be a problem for our economic world, which is based on the premise that energy will be available at incredibly cheap prices.
That may not be true any longer.
People interested in the subject of our energy security should check out this interview with Matthew R. Simmons, the author of "Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy". If you are so inclined, you can download an mp3 or listen to the audio of the interview by clicking here.
Simmons has gone to the trouble of trying to figure out exactly how much each oil field in the world is producing. His findings are a bit scary. As he tells interviewer Jim Puplava:
So I decided it would be interesting and educational to see if you could actually put together a list of the top 20 oil fields by name. And I thought somebody must have done this before, and the more I dug the more I realized that no one ever had. So I basically decided – arbitrarily – 100,000 barrels per day [bpd] production was my cutoff of what constituted a giant oil field and all Fall of 2000, I believe this was, I basically took data from various areas and kept trying to hone in on the total list, and I decided once I got it done, I would circulate it widely to the 4 or 5 or 6 hundred people who really ought to know the areas a lot better, and that would flush out the real data. What I came up with was finding that there are about 120 oil fields in the world that still produced over 100,000 bpd, and that they collectively were 49% of the world’s oil supply. What I also found is that the top 14 fields that still produce over 500,000 bpd each, were 20% of the world’s oil supply, and on average they were 53 years old. The next thing I found was that in the Middle East you had basically, somewhere between 3-5 oil fields in each of the major Middle East oil producers that made up about 90% of their supply – and until I did that I had just assumed the Middle East had hundreds of oil fields – and all these oil fields were old. And then what I found was – because we made it clear that anyone who wanted a copy could get one, but the caveat was that if you have any better information, let me know – I probably shipped over a thousand of these copies out to people and I had about 5 responses of “here’s a field you missed, here’s a field you misspelled or here’s a field you said it was producing X, and I believe it’s probably producing Y.” Only about 5 responses, out of over a thousand people who got this. What I got from hundreds of people was “this is amazing, I’ve never thought about this before.” And these aren’t just sort of random people, these are people that are all passionate energy analysts.
If Simmons is right, many of the assumptions we have made about our economy are bunk. As he explains, we won't run out of oil anytime soon -- but it won't be cheap either. Simmons puts this into context:
Sure. Because every time I get into a discussion now about the future of oil I always get asked, “well, where will oil prices be?” And my response is, “I don’t have any idea where they’re going to be, other than the fact I think on a secular move, we are still at a very, very cheap level of oil prices.” And that immediately gets a response, “Cheap?! Oil’s at $60 a barrel!” And one of the things I’ve observed is that people don’t really understand what a barrel is. They can kind of conceive what a barrel might look like. But when you put it in terms people can understand, I say “what $60 per barrel is, is 18 cents a pint.”
And then I get a response, “How did you do that?!”
“Well, you divide 60 by 42, to get a gallon of oil, and you divide a gallon by 8 to get a pint of oil, and that just happens to be 18 cents a pint.”
And then they say, “ Oh, that’s really cheap, isn’t it?”
And obviously it’s cheap. I don’t know what’s the next cheapest liquid we actually sell in any bulk is, that has any value. I suspect there are places around the United States where municipal water costs more than 18 cents a pint. And yet for some reason, we created a society that was built on a belief that oil prices in a normal range were some place in the $15-20 level. It turns out $15/barrel, which is the average price of oil – in 2004 dollars – it sold for, for the last 140 years, is less than 4 cents a pint. So we’ve basically used up the vast majority of the world’s high flow rate, high quality sweet oil at prices that were effectively so cheap, you basically couldn’t sustain an industry. And now we’re left with lots of oil. But it’s heavy, gunky, dirty, sour, contaminated with various things oil, it doesn’t come out of the ground very fast, is very energy intensive to get out of the ground and we’re going to pay a fortune for it.
Given this situation, aren't you glad our political leaders decided to pass an energy bill that was a big giveaway to energy corporations and failed even to take small steps toward reducing our national reliance on oil?
Our energy consumption is an economic security issue. It is also -- given where most of the world's oil is located -- a major national security issue.
So should we not take it a little more seriously than we have so far?